As professional investors based in the United States who have been investing in Israel for over 20 years, we continue to be amused at how little understanding the broad investment world has about making investments in companies domiciled in Israel. Over the years, as we have discussed the topic with clients and potential investors, the first reaction we almost always witness is one of fear about investing in what is perceived as a volatile and dangerous place. When we mention that we visit the country once or twice a year to check in on our portfolio companies and to look for new opportunities, an often heard comment is “aren’t you afraid to travel there?” Sometimes it’s even, “are you crazy”?
We find ourselves assuring them that, while we may be crazy, it certainly is not because we are investing in Israel! In fact, that has been one of the most intelligent decisions we have made in over three decades of managing other people’s money. We never set out to invest in Israel just for the sake of investing there. Quite the contrary, we simply follow the most important investment ideas and themes we could find, which led us to the vibrant country of Israel.
While great strides have been made in informing the professional investment world about the fantastic opportunities for investment in both private and public companies that exist in Israel, the general population of global investors is still woefully lacking in understanding, and this includes many institutional investors (notably, even Jewish investors), who simply fear making such investments. Despite the best efforts by authors such as tech guru and economist, George Gilder, in his book “The Israel Test,” and Dan Senor and Saul Singer with their great work, “Start Up Nation,” our experience suggests there is a long way to go in crossing the “chasm of fear” with respect to investment in Israel.
How can we assuage these fears that investors have about investing in Israel? In our view, education is the obvious key. They need to know about the symbiotic relationship between the United States and Israel. Certainly our governments work together from a military, security, and counter terrorism standpoint, but, equally impactful from a business standpoint, are the close ties that Israel has with Silicon Valley. Virtually every major US technology company, and increasingly US-based bio-pharma companies, have research and development centers in Israel. Intel’s flagship x86 microchip was designed in their Haifa design center in the 1970s and since then, myriad companies have opened operations in Israel to be close to the “action.” These are some of the most important companies in the world. If there were truly a reason to be fearful, they would not be in Israel risking lives and billions of dollars.
Since the focus in our investment strategy is to “follow the technology,” it has become clear to us that Israel offers one of the best areas to search out companies who innovate. Perhaps it is because of its military or its university system, or simply the unique culture that promotes the entrepreneurial spirit, or a combination of all those factors. Regardless, Israelis have proven themselves to be amazingly adept at innovation. We would go so far as to suggest that it may have become even more important than Silicon Valley in that regard. The Valley has become enamored with the “app economy” and “green technology” since the dot.com blow-up, which is not of interest to us. Israel is exploring the cutting edge in what we call “core technology” and is crucial in the proliferation of technological advancement.
From a practical standpoint, as professional investors who have a world of investment opportunities from which to choose, we are most comforted by the ease of working with Israeli companies from both an accounting and legal standpoint as they each adhere to standards that are similar to those used in the US. And since the bulk of our business is in publicly traded companies, the fact that Israeli companies almost ubiquitously trade on NASDAQ, it is no different to us than making an investment in a US company.
Still, the elephant in the room is the geopolitical environment in Israel, which is what keeps most investors away from investing in the country. While we acknowledge that Israel lives in perhaps the worlds worst neighborhood, that very fact prompts a keen desire for security that manifests itself in an environment that promotes the safety of its citizens and those people who travel there to do business. As such, from firsthand experience, we can say that we feel as safe investing and traveling in Israel as we do in the US, and maybe more so.
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